The Sovereign Gold Bond (SGB) Scheme 2021-22-Series X opens for subscription today on February 28 for a period of five days till March 4. For this tranche of the scheme, the Reserve Bank of India (RBI) has set prices at Rs 5,109 per gram of gold.
For the uninitiated, SGBs are government-backed securities in denominations of 1 gram and further multiples, which can be considered as a substitute for physical gold, minus the costs of buying, selling, and storing it. The scheme was launched in 2015, under the ambit of the Gold Monetisation Scheme.
As for the price-setting mechanism involved, RBI fixes the issue price for each tranche by calculating the simple average of the closing prices of 999 purity gold as disclosed by Indian Bullion and Jewellers Association (IBJA) on the last three working days before the week marked for the subscription. In this case, the dates would be February 23, 24, and 25.
The tenor of the bond is eight years with an exit option after the fifth year to be exercised on the next interest payment dates.
The bonds bear a fixed interest rate of 2.5 percent per annum, on the basis of the initial investment. This is credited to the investor's account on a semi-annual basis, with the last interest payable on maturity, alongside the principal amount.
Notably, a discount of Rs 50 per gram is available to investors who apply online and make payments through digital means. The minimum permissible investment is one gram of gold, while the maximum is 4 kg for individuals, 4 kg for Hindu Undivided Families, and 20 kg for trusts and similar entities per fiscal year.
Traditionally, gold has been considered a safe investment avenue, particularly when markets experience a bearish phase or extreme volatility. As a hedge, not only does gold provide diversification in your portfolio, but is inversely correlated to the market during periods of stress, like now.
And in the light of the ongoing geopolitical crisis between Russia and Ukraine, expectations of US Fed tightening policy, soaring crude oil prices, inflation in India, and lurch in global stock markets, SGBs can make for a good investment option.
"SGBs are a very good idea. Besides earning gold price appreciation, you are also earning interest and if you hold on till maturity, the capital gains are exempt too. Normally, keep around 5 to 10 percent of exposure to gold assets in your portfolio," said Rohit Shah, SEBI-registered investment advisor and founder of Getting You Rich Financial Advisory.